NVIDIA's
Force Within Downloads Page now offers the promised release of their PhysX
GeForce "power pack" for Unreal Tournament 3 along with the newer version 177.83
GeForce graphics drivers that enable PhysX physics processing on 8-series and
later GPUs. The bundle includes the new graphics derivers, the UT3 PhysX mod, a
30-day trial of a Badaboom video transcoding beta, the full version of
Warmonger, The Great Kulu tech demo, a fluids tech demo, sneak peak demos for
the Nurien social networking program and a first-person shooter called Metal
Knight Zero, and a folding@home client. Here's word on the PhysX pack for
UT3:

Owners of a NVIDIA® GeForce® 8 series or later graphics card with a
full version of Unreal Tournament 3 have the unique opportunity to tear up
additional levels of Unreal Tournament 3 through some exclusive NVIDIA® PhysX™
technology features. The PhysX Mod offers three new levels of environmental
destruction including destructible walls, floors, walkways, rooftops and new
weapons. New levels include: Heat Ray, Lighthouse & Tornado The UT3 PhysX Mod
Pack requires a full version of Unreal Tournament 3 - It is not a stand-alone
title. Make sure to enable "Hardware Physics" under Video Settings in the UT3
settings.

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There was a FPS quite a while ago (like 2000, possibly earlier), Red-something, that had destructible levels done in pretty much the same way.

Red Faction. Destructible environments are all well and good in certain applications. However, we need more realistic destruction. I'm talking about destruction on the atomic level. If you hit a cement wall, it should crack and fracture realistically. If you hit it really hard, you should go right through it. Imagine a Carmageddon game with that kind of destruction... *drool*